Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

All references to "PURE," "we", "our," "us" and the "Company" in this Item 7
refer to Pure Bioscience, Inc. and our wholly owned subsidiary.

The discussion in this section contains forward-looking statements. These
statements relate to future events or our future financial performance. We have
attempted to identify forward-looking statements by terminology such as
"anticipate," "believe," "can," "continue," "could," "estimate," "expect,"
"intend," "may," "plan," "potential," "predict," "should," "would" or "will" or
the negative of these terms or other comparable terminology, but their absence
does not mean that a statement is not forward-looking. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, which could cause our actual results to differ from those projected in
any forward-looking statements we make. Several risks and uncertainties we face
are discussed in more detail under "Risk Factors" in Part I, Item 1A of this
Annual Report or in the discussion and analysis below. You should, however,
understand that it is not possible to predict or identify all risks and
uncertainties and you should not consider the risks and uncertainties identified
by us to be a complete set of all potential risks or uncertainties that could
materially affect us. You should not place undue reliance on the forward-looking
statements we make herein because some or all of them may turn out to be wrong.
We undertake no obligation to update any of the forward-looking statements
contained herein to reflect future events and developments, except as required
by law. The following discussion should be read in conjunction with the
consolidated financial statements and the notes to those statements included
elsewhere in this Annual Report on Form 10-K.

Unless otherwise noted, all information in this Item 7 regarding share amounts
of our common stock and prices per share of our common stock has been adjusted
to reflect the application of the one-for-eight reverse stock split of our
common stock that we effected on August 14, 2012, as further described below, on
a retroactive basis.

Overview

Company Overview
We are focused on the discovery, development and commercialization of bioscience
products that provide solutions to global health challenges. Our technology
platform is based on stabilized ionic silver, and our initial products contain
silver dihydrogen citrate, or SDC. SDC is a broad-spectrum, non-toxic
antimicrobial. We manufacture and sell SDC-based disinfecting and sanitizing
products, which are registered by the Environmental Protection Agency, or EPA,
to distributors and end users. We also manufacture and sell various SDC-based
formulations to manufacturers for use as a raw material in the production of
personal care and other products. We believe our technology platform has
potential application in a number of industries, and we have ongoing research
and development projects in food processing, agriculture, water treatment,
pharmaceuticals, and oil and gas.

Our goal is to become a sustainable company by using our proprietary technology
platform to deliver leading antimicrobial products to multiple industries. We
manufacture and sell SDC-based products for end use, products preserved with SDC
and SDC as a raw material for manufacturing use. Our current products are as
follows:

PURE Complete System
Our PURE Complete System is comprised of PURE® Hard Surface and our two new
cleaning products that were launched as companion products to PURE Hard Surface,
PURE Multi-Purpose Cleaner and PURE Floor Cleaner. The PURE Complete System
offers a comprehensive, cost-effective and user-friendly product line to
end-users, janitorial service providers and the distributors that supply them.

PURE Multi-Purpose and Floor Cleaner Concentrates
Our recently launched cleaning products, PURE Floor Cleaner and PURE
Multi-Purpose Cleaner, are environmentally responsible cleaning products that
are protected by SDC, a natural, non-toxic antimicrobial. SDC ensures the
quality and safety of PURE Floor Cleaner and PURE Multi-Purpose Cleaner without
human or environmental exposure to toxic chemical preservatives. PURE Floor
Cleaner and PURE Multi-Purpose Cleaner are non-toxic and non-flammable and
contain no EDTA, phosphates, ammonia or bleach as well as no VOCs or NPEs. PURE
Floor Cleaner and PURE Multi-Purpose Cleaner provide professional strength
cleaning in a concentrate formula that yields a 1:128 use dilution that is safe
for use on all resilient surfaces.

Axen® 30
Axen®30 is our patented and EPA-registered hard surface disinfectant and is a
predecessor product to PURE Hard Surface. Axen30 is sold by distributors under
the private label brands SpectraSan24, PureGreen24, Critical Care, Mother
Nature's Choice and Ag+ainst24. In prior years, we sold this product to other
distributors that resold Axen30 under a variety of other private label brands.

Axenohl®
Axenohl® is our patented and EPA-registered antimicrobial formulation for use as
a raw material in the manufacturing of EPA-registered products. Axenohl is a
colorless, odorless and stable solution that provides fast acting efficacy
against bacteria, viruses and fungi when manufactured into consumer and
commercial disinfecting and sanitizing products.

Silvérion®
Silvérion® is our patented antimicrobial formulation for use as a raw material
in the manufacturing of personal care products. It can be used as either an
active ingredient or a preservative. Silvérion is a colorless, odorless and
stable solution that provides ionic silver in a water-soluble form. It provides
fast acting efficacy at low concentrations against a broad-spectrum of bacteria,
viruses, yeast and molds.

We were incorporated in the state of California in August 1992 as Innovative
Medical Services. In September 2003, we changed our name to Pure Bioscience. In
March 2011, we reincorporated in the state of Delaware under the name "Pure
Bioscience, Inc." We operate in one business segment.

Recent Developments

Reverse Stock Split
On August 13, 2012, we filed a Certificate of Amendment to our Certificate of
Incorporation with the Secretary of State of the State of Delaware to effect a
reverse stock split of our issued and outstanding common stock, $0.01 par value
per share, at a ratio of one-for-eight. The reverse stock split was approved by
stockholders holding a majority of our outstanding voting power at our annual
meeting of stockholders held on July 31, 2012. The reverse stock split became
effective as of the close of trading on August 14, 2012 and shares of our common
stock commenced trading on a post-reverse split basis as of the opening of
trading on August 15, 2012, with each eight (8) issued and outstanding shares of
our common stock automatically combined and converted into one (1) issued and
outstanding share of our common stock. The reverse stock split affected all
issued and outstanding shares of our common stock, as well as common stock
underlying stock options, warrants, and convertible notes outstanding
immediately prior to the effectiveness of the reverse stock split and the number
of shares reserved for issuance under our equity incentive plan, but did not
affect the number of authorized shares of our common stock. As a result of the
reverse stock split, the number of outstanding shares of our common stock was
reduced from approximately 57.8 million immediately prior to the effectiveness
of the reverse stock split to approximately 7.2 million immediately thereafter.

Common Stock Financings
On September 17, 2012, we closed an underwritten public offering of an aggregate
of 4,341,615 shares of our common stock, including shares issued pursuant to the
exercise of the underwriter's overallotment option, at a price to the public of
$1.10 per share for net proceeds to us of approximately $4,313,000 (after
deducting underwriting discounts and commissions and other offering expenses,
although before payment of certain other legal and accounting expenses). The
offering was made pursuant to our registration statement on Form S-3
(Registration No. 333-182475), which became effective on July 31, 2012, and a
preliminary and final prospectus supplement filed with the Securities Exchange
Commission, or the SEC, on September 4, 2012 and September 13, 2012,
respectively. The shares were sold pursuant to an underwriting agreement between
us and Aegis Capital Corp.

On June 29, 2012, we entered into a common stock purchase agreement with fifteen
investors, pursuant to which we issued and sold to such investors an aggregate
of 325,125 shares of our common stock and warrants to purchase up to an
aggregate of 81,280 shares of our common stock. The shares were sold to the
investors at a price of $2.00 per share, resulting in gross proceeds to us of
approximately $650,000. The warrants issued to such investors have a three-year
term, become exercisable six months after the date of their issuance, and have
an exercise price of $3.52 per common share, subject to adjustment as set forth
in the warrants. The investors have certain piggyback registration rights with
respect to the shares sold pursuant to the common stock purchase agreement, the
warrants and the shares issuable upon exercise of the warrants, which rights are
subject to certain conditions and limitations set forth in such agreement. None
of the securities sold to such investors have been registered under the
Securities Act or any state securities laws and have been issued in reliance on
an exemption from the registration requirements of the Securities Act afforded
by Section 4(2) thereof and Regulation D promulgated thereunder.

On June 4, 2012, we issued an aggregate of 250,000 shares of our common stock to
three separate investors pursuant to separate agreements entered with each such
investor on May 16, 2012, May 17, 2012 and May 23, 2012. The shares were sold at
a price of $2.00 per share, resulting in approximately $500,000 in aggregate
gross proceeds to us. The shares have not been, nor will they be, registered
under the Securities Act or any state securities laws and have been issued in
reliance on an exemption from the registration requirements of the Securities
Act afforded by Section 4(2) thereof.

Bridge Loan
Pursuant to a securities purchase agreement entered into on June 26, 2012, on
July 10, 2012 we received an aggregate of $1,200,000 in cash consideration from
nine lenders in exchange for our issuance to such lenders of secured convertible
promissory notes, or the Notes, in an aggregate principal amount of $1,333,000.
We refer to such transaction herein as the "Bridge Loan". Pursuant to the terms
of the Notes and the other agreements (as amended) entered in connection with
the Bridge Loan, or the Loan Agreements, all amounts owed thereunder became due
and payable upon our closing of our underwritten public offering on September
17, 2012, and accordingly such amounts have been repaid in accordance with such
terms.

The Notes had an interest rate of 0% during their term, subject to certain late
fee and interest charges if they were not repaid when they became due. The Notes
were secured by a lien on all of our assets pursuant to a security agreement
entered in connection with the Bridge Loan, which security interest has been
terminated pursuant to our repayment of all amounts owed. The Notes were also
secured by 575,000 shares of our common stock (later reduced to 500,000 shares
pursuant to an amendment effective September 6, 2012), which shares were issued
in the name of an escrow agent as additional collateral for the timely repayment
of the Notes and will be cancelled pursuant to our full repayment of the Bridge
Loan. The Notes were convertible into shares of our common stock at the option
of the lenders if all amounts owed thereunder were not paid in accordance with
the terms of the Notes and the other Loan Agreements.

As further consideration to the lenders for the Bridge Loan in addition to our
issuance of the Notes, we issued to each such lenders: (i) an aggregate amount
of 54,878 shares of our common stock and (ii) warrants to acquire up to an
aggregate amount of 128,046 shares of our common stock, which warrants have a
four-year term, become exercisable six months after the date of their issuance,
and currently have an as-adjusted exercise price equal to $1.023 per share
(subject to certain additional adjustments as set forth in such warrants).

Additionally, for services provided in conjunction with Bridge Loan, we issued
to the placement agent for the Bridge Loan: (i) an aggregate amount of 625
shares of our common stock and (ii) warrants to acquire up to an aggregate
amount of 4,374 shares of our common stock, which warrants have a four-year
term, become exercisable six months after the date of their issuance, and
currently have an as-adjusted exercise price equal to $1.023 per share (subject
to certain additional adjustments as set forth in such warrants).

Total fees associated with the Bridge Loan were $267,000. Of that amount,
$166,000 relates to the fair value of 54,878 shares of common stock issued to
the lenders, and $2,000 relates to the fair value of 625 shares of common stock
issued to the placement agent for the Bridge Loan.

NASDAQ Delisting
As previously disclosed in certain of our reports filed with the SEC, commencing
in September 2011, we have received a series of deficiency letters from the
NASDAQ Stock Market, or NASDAQ, and have undergone a lengthy appeal process with
a NASDAQ Hearings Panel, or the Panel, relating to the potential delisting of
our common stock from the NASDAQ Capital Market for noncompliance with several
listing rules and standards. After receiving several letters from the Panel
granting our continued listing contingent upon our satisfaction of certain
specified conditions, on September 21, 2012, we received a final decision letter
notifying us that the NASDAQ Listing Qualifications Staff had concluded that we
had satisfied the required conditions and regained compliance with all
applicable listing requirements, and accordingly had determined to continue the
listing of our securities on the NASDAQ Capital Market and to close the matter
of our delisting on that date.

On October 1, 2012, we received a new deficiency letter from NASDAQ regarding
our noncompliance with NASDAQ's audit committee membership requirements as a
result of the death of our former director and Audit Committee member Gregory
Barnhill. Consistent with applicable NASDAQ listing rules, NASDAQ has granted us
the following cure period to regain compliance with NASDAQ's audit committee
membership requirements: (i) until the earlier of our next annual meeting of
stockholders or September 14, 2013, or (ii) if our next annual meeting of
stockholders is held before March 13, 2013, until March 13, 2013. We intend to
appoint an independent director who satisfies NASDAQ's requirements for
membership on our Audit Committee as promptly as practicable to rectify this
noncompliance.

Settlement Agreement
On June 29, 2011, we filed suit against Richmont Sciences, LLC in San Diego
County Superior Court, Case No. 37-2011-00068549-CU-CO-EC, asserting various
causes of action to collect on outstanding invoices. Richmont Sciences, LLC and
Richmont Holdings, LLC then filed a cross-complaint for damages against us
asserting contract, tort and statutory (trade secret) claims arising out of
business dealings with us. We then filed a cross-complaint for compensatory and
punitive damages against Richmont Sciences, LLC and Richmont Holdings, LLC
asserting contract and fraud claims. Our initial suit against Richmont Sciences,
LLC and all related cross-claims are referred to herein as the "Richmont
Litigation".

Additionally, prior to our 2012 annual meeting of stockholders held on July 31,
2012, a solicitation of proxies in favor of an opposing slate of six nominees
for election as directors on our Board at that annual meeting had been initiated
by The Coalition to Save Pure, or the Coalition, which consisted of Jeffrey P.
Bash, Theodore J. Coburn, C. James Jensen, Dr. Martin Kassir, Thomas J.
Reynolds, John P. Rochon and Richmont Corporation.

Effective as of July 9, 2012, we entered into a settlement agreement with the
Coalition and with Richmont Sciences, LLC, Richmont Holdings, Inc., Richmont
Corporation and IV-7 Direct, LLC, which we collectively refer to as "Richmont".
Pursuant to the terms of the settlement agreement, all parties have dismissed
all claims and cross-claims in the Richmont Litigation with prejudice, and
Richmont and their respective affiliates, including John P. Rochon, have taken
and have caused the Coalition to take all reasonable and necessary efforts to
withdraw and not resubmit the Coalition's proxy solicitation in connection with
our 2012 annual meeting of stockholders. In addition, the settlement agreement
obligates us to make good faith efforts to, within 12 months after the date of
our 2012 annual meeting of stockholders, replace one member of our Board with an
independent director and add an additional independent director to our Board.

Financial Overview
This financial overview provides a general description of our revenue and
expenses.

Revenue
We manufacture and sell SDC-based products for end use, and as a raw material
for manufacturing use. We also license our products and technology to
development and commercialization partners. Revenue is recognized when realized
or realizable and earned. Any amounts received prior to satisfying revenue
recognition criteria are recorded as deferred revenue.

Cost of Goods Sold
Cost of goods sold for product sales includes direct and indirect costs to
manufacture products, including materials consumed, manufacturing overhead,
shipping costs, salaries, benefits and related expenses of operations.
Depreciation related to manufacturing is systematically allocated to inventory
produced, and expensed through cost of goods sold at the time inventory is sold.

Selling, General and Administrative
Selling, general and administrative expense consists primarily of salaries and
other related costs for personnel in business development, sales, finance,
accounting, information technology, and executive functions. Other selling,
general and administrative costs include product marketing, advertising, and
trade show costs, as well as public relations and investor relations, facility
costs, and legal, accounting and other professional fees.

Research and Development
Our research and development activities are focused on leveraging our technology
platform to develop additional proprietary products and applications. Research
and development expense consists primarily of personnel and related costs,
product registration expenses, and third-party testing. We expense research and
developments costs as incurred.

Other Income (Expense)
We record interest income, interest expense, change in derivative liabilities,
as well as other non-operating transactions, as other income (expense) in our
consolidated statements of operations.

Results of Operations - Comparison of the Years Ended July 31, 2012 and 2011

Fluctuations in Operating Results
Our results of operations have fluctuated significantly from period to period in
the past and are likely to continue to do so in the future. We anticipate that
our results of operations will be affected for the foreseeable future by several
factors that may contribute to these periodic fluctuations, including the demand
for our products, the timing and amount of our product sales, and the progress
and timing of expenditures related to sales and marketing, as well as product
development. Due to these fluctuations, we believe that the period-to-period
comparisons of our operating results are not a reliable indication of our future
performance.

Net Product Sales
Net product sales were $812,000 and $454,000 for the years ended July 31, 2012
and 2011, respectively. The increase of $358,000 was primarily attributable to
sales to one customer, as well as increased sales to several other
customers. Our top two customers accounted for $547,000 of net product sales for
the year ended July 31, 2012.

For the year ended July 31, 2012, two individual customers accounted for 67% of
our net product sales. No other individual customer accounted for 10% or more of
our net product sales. The geographic breakdown of net product sales was as
follows: 92% U.S. and 8% foreign.

For the year ended July 31, 2011, one customer accounted for 46% of our net
product sales. No other individual customer accounted for 10% or more of our net
product sales. The geographic breakdown of net product sales was as follows: 87%
U.S. and 13% foreign.

Cost of Goods Sold
Cost of goods sold was $264,000 and $131,000 for the years ended July 31, 2012
and 2011, respectively. The increase of $133,000 was attributable to increased
net product sales, as well as an inventory charge. The inventory charge
represents costs incurred by us to rework certain finished goods inventory, as
well as a write-off of certain packaging inventory.

Gross margin as a percentage of net product sales, or gross margin percentage,
was 67% and 71% for the years ended July 31, 2012 and 2011, respectively. Gross
margin percentage, excluding the inventory charge noted above, was 75% and 71%
for the years ended July 31, 2012 and 2011, respectively. The decrease in gross
margin percentage was primarily attributable to the sale of lower margin
formulations and packaging configurations of our products during the year ended
July 31, 2012 as compared to prior year.

Selling, General and Administrative Expense
Selling, general and administrative expense was $7,439,000 and $6,520,000 for
the years ended July 31, 2012 and 2011, respectively. The increase of $919,000
was primarily attributable to an increase in legal fees, which were incurred as
a result of litigation with Richmont Sciences LLC as well as the proxy contest
that Richmont Corporation initiated, and increases in personnel and related
costs. The increases were partially offset by reduced depreciation,
amortization, and stock option expense.

Research and Development Expense
Research and development expense was $1,863,000 and $2,180,000 for the years
ended July 31, 2012 and 2011, respectively. The decrease of $317,000 was
primarily attributable to decreases in personnel and related costs, third-party
research and testing activities, laboratory supplies and patent costs. These
decreases were partially offset by increased stock option expense.

Change in Derivative Liability
Change in derivative liability for the years ended July 31, 2012 and 2011 was
$11,000 and zero respectively. The increase is due to the issuance of warrants
with anti-dilution provisions during the year ended July 31, 2012 and the
conversion features associated with the secured convertible promissory notes
that we issued in July 2012 in connection with the Bridge Loan.

Interest Expense
Interest expense for the year ended July 31, 2012 was $145,000 compared to zero
for the year ended July 31, 2011. The increase in interest expense during the
year ended July 31, 2012 is primarily attributable to non-cash amortization of
debt discounts related to the secured convertible promissory notes that we
issued in July 2012 in connection with the Bridge Loan.

Interest Income
Interest income was $1,000 and $8,000 for the years ended July 31, 2012 and
2011, respectively. The decrease was primarily attributable to lower cash
balances in the year ended July 31, 2012.

Other (Expense) Income, net
Other expense, net was $3,000 for the year ended July 31, 2012, compared to
other income, net of $10,000 for the year ended July 31, 2011. The decrease of
$13,000 was primarily attributable to a settlement amount of $13,000 that we
received in the year ended July 31, 2011.

Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through public
and private offerings of securities, revenue from product sales and license
agreements, proceeds from the sale of a division and interest income from
invested cash balances. We have a history of recurring losses, and we have
incurred a cumulative net loss of $62,500,000.

On September 17, 2012, we closed an underwritten public offering of an aggregate
of 4,341,615 shares of our common stock, including shares issued pursuant to the
exercise of the underwriter's overallotment option, at a price to the public of
$1.10 per share for net proceeds to us of approximately $4,313,000 (after
deducting underwriting discounts and commissions and other offering expenses,
although before payment of certain other legal and accounting expenses).

Pursuant to a securities purchase agreement entered into on June 26, 2012, on
July 10, 2012 we received an aggregate of $1,200,000 in cash consideration from
nine lenders in exchange for our issuance to such lenders of Notes in an
aggregate principal amount of $1,333,000 in the Bridge Loan transaction.
Pursuant to the terms of the Loan Agreements, all amounts owed thereunder became
due and payable upon our closing of our underwritten public offering on
September 17, 2012, and accordingly such amounts have been repaid in accordance
with such terms.

On June 29, 2012, we entered into a common stock purchase agreement with fifteen
investors, pursuant to which we issued and sold to such investors an aggregate
of 325,125 shares of our common stock and warrants to purchase up to an
aggregate of 81,280 shares of our common stock. The shares were sold to the
investors at a price of $2.00 per share, resulting in gross proceeds to us of
approximately $650,000.

On June 4, 2012, we issued an aggregate of 250,000 shares of our common stock to
three separate investors pursuant to agreements entered with each such investor
on May 16, 2012, May 17, 2012 and May 23, 2012. The shares were sold at a price
of $2.00 per share, resulting in approximately $500,000 in aggregate gross
proceeds to us.

On December 14, 2011 and December 15, 2011, we entered into two purchase
. . .